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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jun 23, 2024Hindi
Money

I have been investing through SIP in the following fund Nippon India Growth Fund-1000/- Mirae Asset Smaller co fund -1500/- Axis Growth Opportunity Fund -1500/- Axis Small Cap Fund - 2000/- BOI Small Cap Fund -2000/- Quant Small Cap Fund -2000/- Quant Active Fund - 2000/- Can Robeco Emerging Equity -2000/- Invesco India Large and Mid cap -2000/- PGIM India Mid Cap Opportunity Fund -2000/- Tata Digital India Fund - 3000/- DSP Small Cap Fund -1500/- Parag Parikh Flexicap Fund -2000/- Bandhan Sterling Value Fund -2000/- HSBC Business Cycle fund -1000/- HSBC Large and Midcap-1000/- Now total value stands at 41 Lakh. Should I continue to invest in these funds. Kindly guide with your valued suggestion to make the best out of such funds. Regards

Ans: First off, kudos on your diligent investment journey so far! Your diversified SIP portfolio and the current value of Rs 41 lakhs is impressive. Let's dive deep into your portfolio and see how we can optimize it for better returns, ensuring you achieve your financial goals.

Understanding Your Current Portfolio
You've spread your investments across various fund categories, primarily focusing on small caps, mid caps, and a few large and mid-cap funds. While diversification is key, it's also important to align your investments with your financial goals, risk tolerance, and investment horizon. Let's evaluate your portfolio step-by-step.

Diversification and Fund Overlap
Diversification helps reduce risk, but too much of it can dilute returns. You have a significant number of small-cap funds. While small caps can offer high growth potential, they also come with high volatility. It's essential to balance this with funds in other categories to manage risk better.

Small-Cap Funds
Your portfolio includes several small-cap funds: Nippon India Growth Fund, Mirae Asset Smaller Companies Fund, Axis Small Cap Fund, BOI Small Cap Fund, Quant Small Cap Fund, and DSP Small Cap Fund. Small-cap funds have high growth potential but also higher risk. Consider reducing the number of small-cap funds to avoid overexposure to this volatile category. You can consolidate to a couple of high-performing small-cap funds instead.

Mid-Cap and Large & Mid-Cap Funds
Funds like PGIM India Mid Cap Opportunity Fund, Canara Robeco Emerging Equities, Invesco India Large and Mid Cap Fund, and HSBC Large and Mid Cap Fund provide a good balance between growth and stability. These funds tend to be less volatile compared to small caps but offer reasonable growth prospects. Retaining a couple of these funds while ensuring they are top performers can be a good strategy.

Flexicap and Value Funds
Parag Parikh Flexicap Fund and Bandhan Sterling Value Fund offer flexibility and value investing opportunities. Flexicap funds invest across market capitalizations, providing a balanced approach, while value funds focus on undervalued stocks, offering potential for decent returns. Maintaining these funds can provide a well-rounded portfolio.

Sectoral and Thematic Funds
You have the Tata Digital India Fund, which is a sectoral/thematic fund focused on the technology sector. These funds can be high-risk, high-reward due to their sector-specific nature. It’s wise to limit exposure to such funds to a smaller portion of your portfolio, as they are more volatile and depend heavily on the performance of the specific sector.

Active vs. Passive Funds
You've opted for actively managed funds. Actively managed funds aim to outperform the market through the expertise of fund managers. While they come with higher expense ratios compared to index funds, they can potentially offer higher returns if managed well. This approach is beneficial as it involves expert guidance, especially when navigating volatile markets.

Direct vs. Regular Funds
Direct funds typically have lower expense ratios compared to regular funds as they don't involve intermediaries. However, regular funds offer the advantage of professional advice from Certified Financial Planners (CFPs). This advice can be crucial for optimizing your portfolio and aligning it with your financial goals. Given your complex portfolio, continuing with regular funds might be beneficial for expert guidance.

Evaluating Fund Performance
It's crucial to periodically review the performance of your funds. Look at their returns over different time horizons, compare them with benchmark indices, and evaluate their consistency. If any fund consistently underperforms its benchmark or peers, consider switching to a better-performing fund.

Aligning with Financial Goals
Your investments should align with your financial goals, whether it's wealth creation, retirement planning, or funding your child's education. Define your goals clearly, and allocate funds accordingly. For instance, if you have long-term goals, you can afford to take on more equity exposure. For short-term goals, consider safer investments.

Risk Management
Understand your risk tolerance and ensure your portfolio aligns with it. Too much exposure to high-risk funds can lead to significant losses during market downturns. A balanced approach with a mix of high-growth and stable funds is advisable. Regularly review and rebalance your portfolio to maintain the desired risk level.

Power of Compounding
One of the biggest advantages of mutual fund investments is the power of compounding. The longer you stay invested, the more your investments grow, as you earn returns not just on your principal amount but also on the accumulated returns. SIPs leverage this by investing systematically and benefiting from rupee cost averaging.

Regular Monitoring and Rebalancing
Investment is not a one-time activity. Regularly monitor your portfolio, at least once a year. Assess the performance, rebalance if necessary, and ensure your portfolio remains aligned with your goals and risk tolerance. This proactive approach helps in navigating market changes and staying on track.

Seeking Expert Advice
While you've done a great job with your investments, consulting with a Certified Financial Planner (CFP) can provide additional insights and strategies tailored to your specific needs. A CFP can help you with detailed portfolio analysis, goal setting, and ongoing financial planning.

Final Insights
To sum up, your current portfolio is diversified, but there is room for optimization. Consider reducing the number of small-cap funds, ensuring you hold top-performing mid-cap and large & mid-cap funds, and balancing your sectoral/thematic exposure. Stay invested for the long term to harness the power of compounding. Regularly review and rebalance your portfolio to align with your financial goals and risk tolerance. And don’t hesitate to seek professional advice for a more tailored approach.

Keep up the good work and continue your disciplined investment journey. It’s great to see such dedication towards securing your financial future.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I am investing in following funds through SIP 1. HDFC top 200 Regular Growth since 2010 Rs. 3000 2. ICICI PRUDENTIAL LARGE & MIDCAP FUND GROWTH SINCE 2014 Rs. 2000 3. BANDHAN FLEXICAP FUND-GROWTH SINCE 2011 Rs. 2000 4. BSL FRONTLINE EQUITY FUND - GROWTH SINCE 2010 Rs. 3000 (STOPPED SIP IN 2020) 5. MIRAE ASSET BLUECHIP FUND - GROWTH SINCE 2021 Rs. 2500 6. HDFC FLEXI CAP - GROWTH SINCE 2022 Rs. 5500 PLEASE ADVICE ME WHETHER I SHOULD CONTINUE WITH THESE FUNDS OR EXIT. I FURTHER WANT TO INVEST Rs. 15000 MORE. PLEASE SUGGEST WHETHER I SHOULD INCREASE SIP AMOUNT IN THESE FUNDS OR START SIP IN NEW FUND
Ans: Assessing Your Mutual Fund Investments and Planning for the Future

Your portfolio demonstrates a disciplined approach to mutual fund investing over the years. Let's evaluate your current holdings and chart a course for future investments.

Analyzing Existing SIPs

HDFC Top 200, ICICI Prudential Large & Midcap, and Bandhan Flexicap Funds have been part of your investment journey for several years. These funds offer exposure to different market segments, providing diversification benefits.

BSL Frontline Equity Fund, while stopped in 2020, has a long track record of performance. It's essential to review the reasons for discontinuing this SIP and assess whether it aligns with your current investment strategy.

Mirae Asset Bluechip Fund and HDFC Flexi Cap Fund, initiated more recently, contribute to diversification and may offer growth potential.

Evaluating Performance and Suitability

Review the performance of each fund relative to its benchmark and peer group. Assess whether the fund manager's investment approach and strategy align with your risk tolerance and investment objectives.

Consider the consistency of returns, risk-adjusted performance, and fund management quality. Additionally, evaluate the fund's expense ratio and turnover ratio to ensure cost-effectiveness.

Deciding Whether to Continue or Exit

Continue SIPs in funds with consistent performance, robust fundamentals, and alignment with your investment goals.

Consider exiting funds that consistently underperform their benchmarks or peers, have experienced significant changes in fund management, or deviate from your risk profile.

Planning Additional Investments

Given your intention to invest an additional Rs. 15,000, consider the following options:

Increase SIP amounts in existing funds with proven track records and growth potential. This approach maintains continuity and capitalizes on the strengths of your current portfolio.

Explore new funds that complement your existing holdings and provide exposure to underrepresented sectors or asset classes. Conduct thorough research and seek professional advice to identify suitable options.

Seeking Professional Guidance

As a Certified Financial Planner, I recommend conducting a comprehensive portfolio review to ensure alignment with your financial goals and risk tolerance. Regular monitoring and periodic adjustments are essential to optimize your investment outcomes.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Asked by Anonymous - Nov 22, 2024Hindi
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A bit long story I'm 21 student preparing for medical competative entrance exam for past 3 years (21-24).2 year ago this phase I was in a long distance relationship for 4 months with a girl I met in my class .But it didn't last long due to the problems created due to distance as she couldn't understand myself and I couldn't understand herself.so there was a misunderstanding and I couldn't hold on as I was in heavy pressure by exams and financial problems.so I couldn't handle and I felt like too early and broke up with her by losing my mind.she was completely disappointed as I didn't speak to her for more than an year due to one more year preparation.i missed her very much but I didnt tell her.I missed govt seat in border mark and the same year she got into a relationship with another guy in her class.i don't blame her. But I feel like my entire life is shattered and I couldn't move on from that girl till now.I couldn't concentrate on my career too.im kind of person who is always confident in all aspects but I have totally lost my mind .I can see that in an danger situation as age is running and family pressure, everyone of my classmates are far ahead of me I couldn't withstand this situation and couldn't make proper decision in any aspect. Mam please help me out.
Ans: Dear Anonymous,
I understand your concerns. The first step is to focus on moving on; she has, and you should too. Prioritize your career, your family, and your future. Next, what has happened to your career progress has already happened. It's unfortunate, but there's no way to change that. But give yourself a second chance; work harder and achieve greater things than you even imagined before. Trust me, you are not the only person who is standing in a situation like this. Many have, and many more will. But the ones who have passed this time will give you the same advice that I did.

Best Wishes.

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Asked by Anonymous - Nov 13, 2024Hindi
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Sir, I am 40yrs old. Having monthly takehome salary of 1.1 lakh and rental income of 36000. My investment are 2 flats worth of 1cr. 4 plots in Bhubaneswar worth of 2crs. EPF balance 50 lakh, LIC policies worth of 16 lakhs, NPS worth of 10 lakhs. My monthly saving commitments are - EPF (employee+employer) 28000 NPS 15000 MF 7500 Gold scheme 5000 Financial burden - HL emi of 24000 Monthly expanses 50000 I would like to retire at 50. Please advise for retirement plan with life expectancy of 80yrs.
Ans: Hello;

The value of your investments after 10 years;

A. EPF Corpus+Contribution: 1.6 Cr
B. NPS Corpus+Contribution: 53 L
C. MF(sip) + Gold(sip): 25 L
D. Real estate (land): 3.26 Cr

So sum of A, C & D gives us a corpus of 5.11 Cr

Since you will withdraw NPS before 60 age 80% of corpus will go into annuity while 20% will be available to you.

So you may expect monthly income of around 21 K from annuity(42.4 L).

Balance 10.6 L get added to 5.11L taking your total corpus to ~ 5.2 Cr.

If you invest 5 Cr in a conservative hybrid debt fund and do a SWP at the rate of 3%, you may expect a monthly income of around 1.1 L(post-tax).

Add your monthly rental income of 36 K(No growth factored) and annuity income of 21 K to this and you have total monthly income of 1.67 L after 10 years.

Your current monthly expenses of 50 K after 10 years would be around 90 K and 1.6 L after 20 years.

Considering return of around 7-7.5% from the conservative hybrid debt fund you will still generate inflation adjusted return at 3% SWP after 80 years of age.

Assumptions:
Inflation rate-6%
Return from EPF-8%
Return from NPS-9%
Return from MF-10%
Return from gold-7%
Return from Land-5%
Annuity rate-6%

The spare flat is not considered in this because it will continue to yield you rental income in retirement.

Since real estate(land) returns may fluctuate over 10 years suggest to increase MF sip(6X) as a back-up, also in this case you may decide to retain & invest in NPS upto 60 age.

Of course MF returns are also not assured but you are improving the odds by backing two appreciable assets(RE & equity) over long-term.

Happy Investing;
X: @mars_invest

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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 22, 2024

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My age 62, male, getting rental income Rs. 90k nett. Already subscribing 12.5k in PPF for the past 2 1/2 years. No other investments. My target is 5 crores in 10 years. I already have Mediclaim Rs.50 lakhs for me & wife . Please advice me what to do.
Ans: Your current financial foundation is strong and shows promise:

A rental income of Rs. 90,000 per month provides consistent and predictable cash flow. This stability can serve as the backbone for your investment strategy.

PPF contributions of Rs. 12,500 per month for 2.5 years reflect disciplined saving. However, its returns may be insufficient to achieve a high-growth target like Rs. 5 crores in 10 years.

A robust Mediclaim policy of Rs. 50 lakhs for you and your wife ensures adequate health coverage. This safeguard allows you to focus on wealth-building without worrying about medical emergencies.

Despite these positive factors, achieving Rs. 5 crores in 10 years requires a carefully crafted and growth-oriented strategy.

Defining and Prioritising Your Financial Goals
Achieving Rs. 5 crores is ambitious yet achievable with a focused approach:

Define this target as your primary financial goal over the next decade.

Break it into manageable milestones: for example, Rs. 50 lakhs every 1-2 years in cumulative investments and growth.

Prioritise high-return investments that align with your risk tolerance and financial capacity.

Optimising Existing PPF Contributions
While PPF is a secure investment, its growth potential is limited:

Returns: PPF currently offers an interest rate of approximately 7-7.5%, which barely outpaces inflation.

Contribution Review: Consider capping your PPF contributions at Rs. 1.5 lakh annually (to utilise the Section 80C benefit). This ensures that excess funds are redirected to higher-return investments.

PPF can serve as a low-risk component of your portfolio but should not dominate your investment strategy.

Building a Diversified Investment Portfolio
A diversified portfolio will provide a balance of risk and reward. Include the following components:

1. Equity Mutual Funds for Growth
Equity mutual funds are essential for achieving high returns over the long term:

Large-Cap Funds: These invest in established companies and offer stability with moderate growth. They are ideal for a portion of your portfolio to reduce risk.

Multi-Cap or Flexi-Cap Funds: These provide exposure to companies of all sizes, offering growth and diversification.

Sectoral and Thematic Funds: Avoid these unless you have a high risk tolerance and understand market dynamics.

ELSS Funds: These not only provide tax savings under Section 80C but also deliver market-linked returns.

Why Avoid Index Funds?

Index funds may offer simplicity and lower expense ratios, but they lack flexibility. They cannot adapt to market conditions or capitalise on outperforming sectors. Actively managed funds, on the other hand, have the potential to outperform the market, especially in a developing economy like India.

Start with a Systematic Investment Plan (SIP) in selected funds to build wealth steadily.

2. Debt Mutual Funds for Stability
Debt funds add stability to your portfolio and reduce overall risk:

Choose funds with low credit risk and moderate duration to ensure safety and predictable returns.

Debt funds are suitable for short- to medium-term goals or as a fallback during market corrections.

Taxation Note: Both LTCG and STCG on debt funds are taxed as per your income tax slab. This should be factored into your planning.

3. Balanced Advantage Funds
Balanced advantage funds (BAFs) dynamically allocate assets between equity and debt. They:

Provide exposure to equity while minimising downside risk.

Offer a suitable option for someone nearing retirement but seeking growth.

4. Gold Investments for Diversification
Allocate a small portion (5-10%) of your portfolio to gold:

Gold serves as a hedge against inflation and currency depreciation.

Choose gold ETFs or sovereign gold bonds for ease of liquidity and better returns.

Emergency Fund Creation
Having an emergency fund is non-negotiable:

Maintain at least 6-12 months of expenses in liquid investments like liquid mutual funds or high-interest savings accounts.

This ensures liquidity for unforeseen events without disturbing your long-term investments.

Focus on Retirement Planning
At 62, balancing growth and safety becomes critical:

Estimate your monthly retirement expenses, considering inflation over the next 10-15 years.

Your target of Rs. 5 crores should primarily serve as your retirement corpus.

Allocate assets thoughtfully:

60-70% in equity funds for growth.
30-40% in debt funds for stability.
Periodically rebalance your portfolio to maintain this allocation.

Strategic Tax Planning
Tax efficiency can significantly impact your returns:

Continue using Section 80C to its full potential, including ELSS funds and PPF.

Consider the National Pension System (NPS) for an additional Rs. 50,000 deduction under Section 80CCD(1B).

Be mindful of the new taxation rules for mutual funds:

Equity Mutual Funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%; STCG at 20%.
Debt Funds: LTCG and STCG are taxed as per your income slab.
Consult a Certified Financial Planner to optimise your tax strategy.

Regular Portfolio Monitoring and Rebalancing
Investing is not a one-time activity:

Review your portfolio every six months or annually to track performance.

Rebalance your asset allocation periodically to align with your financial goals and risk appetite.

Stay committed to SIPs even during market downturns, as this ensures cost-averaging.

Additional Suggestions
Avoid Over-Reliance on PPF
While PPF is safe, it is not sufficient for wealth creation. Shift excess contributions to equity-based investments for better returns.

Avoid Direct Stocks
Direct equity investing requires time, expertise, and constant monitoring. It carries higher risk and may lead to losses without proper research. Instead, rely on equity mutual funds managed by professionals.

Avoid Mixing Insurance and Investments
Do not invest in ULIPs or endowment plans, as they offer suboptimal returns. Stick to pure insurance products for protection and mutual funds for growth.

The Role of a Certified Financial Planner
To achieve Rs. 5 crores, a well-crafted financial plan is essential. A Certified Financial Planner (CFP) can:

Analyse your current investments and recommend improvements.

Design a customised strategy tailored to your income, expenses, and goals.

Provide periodic reviews to ensure you stay on track.

Finally
Achieving Rs. 5 crores in 10 years is a realistic goal if you adopt a disciplined and diversified approach.

Optimise your PPF contributions and channel excess funds into higher-growth investments.

Build a diversified portfolio with equity and debt mutual funds.

Include a small allocation to gold and maintain an emergency fund.

Stay consistent with your SIPs and review your investments regularly.

Work with a Certified Financial Planner to create a personalised roadmap.

By following these steps, you can secure your financial future and meet your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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